James Pethokoukis

Politics and policy from inside Washington

The stark difference between Reid’s defense cuts and Ryan’s

Jul 26, 2011 12:41 UTC

Here’s the big problem House Republicans have with Sen. Harry Reid’s budget plan: Some $1 trillion of its $2.7 trillion in savings over the next decade — or 37 percent — come from factoring in an expected troop drawdown over the next few years from Iraq and Afghanistan. This is something everyone expects — other than the Congressional Budget Office baseline fiscal forecast. It assumes no drawdown, and it is against CBO’s unlikely scenario that Reid compares his plan.

So, Republicans say, the real savings are just $1.3 trillion, excluding $400 billion in interest payment reductions. That is far less than the $2.4 trillion hike in the debt limit Reid is asking for. And recall that Republicans want spending cuts to at least equal the increase in the debt limit. So Reid is still short, from the House GOP perspective, anywhere from $700 billion (if you accept the interest savings) to $1.1 trillion.

But Democrats charge hypocrisy, noting the recent House Republican budget from Rep. Paul Ryan also assumes a troop drawdown. So GOPers should quit playing politics and embrace the Reid plan.  But what Democrats aren’t saying is that even with that assumption, the House-Ryan budget plan cuts spending by $6.2 trillion vs. President Obama’s 2012 budget since the Obama plan also assumes savings from a drawdown.

So zero percent of Ryan’s $6.2 trillion in spending savings vs. the Obama budget comes from the drawdown. And even against the CBO baseline (which assumes perpetual war with no drawdown), just 17 percent of the House-Ryan budget comes from the drawdown. It still has $4.8 trillion in actual cuts.  This chart from the House budget committee helps explain things. The key spending line is “Global War on Terror”:

 

COMMENT

I appreciate your response and PLEASE, don’t misinterpret me. I am NO fan of Mr. Obama, not at all. My objection is numbers going out ten years in the future and treated as though they are real and unassailable. I also disbelieve this whole global warming thing because it relies too much on predictions of the distant future. Nobody, and I mean NOBODY, can predict the future with even remote accuracy. Certainly not politicians, so these numbers showing surpluses or deficits well into the future, and with three-digit accuracy no less are, in my huimble opinion, worthless.

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Why a debt ceiling deal is (probably) going to get done

Jul 25, 2011 14:23 UTC

If you believe in a) free enterprise and b) fiscal solvency, would the emerging Harry Reid proposal to raise  the debt ceiling and cut debt be so terrible an outcome? First some general deets:

House Speaker John A. Boehner, Ohio Republican, pitched his colleagues on a plan to raise the borrowing limit by about $1 trillion and match that with similar sized spending cuts — enough to last through the rest of the year, and leaving for later the heavy lifting on taxes and bigger spending items.

Meanwhile, Senate Majority Leader Harry Reid said he is working on a plan to raise the debt limit by $2.7 trillion, coupled with an equal reduction in projected future spending. In a concession to Republicans, he said that plan would not include tax increases, but that the new debt level would last through the 2012 elections.

On the surface at least, this would seem to meet the baseline demands that Boehner and Majority Leader Eric Cantor expressed in their conference call with House GOP members on Sunday. Here is Cantor:

The only way to overcome [Obama] is to remain united and insist that every dollar the debt limit is increased, we have equal or more dollars in spending cuts without ANY tax hikes.

Well, the Reid plan would seemingly cut $2.7 trillion, a few hundred billion more than the debt limit increase. And no new taxes. Republicans will gripe about the quality of those spending cut, of course. And they should. Perhaps $1 trillion — maybe more — would come from no longer assuming perpetual war in Iraq and Afghanistan. But House Rs already passed a budget with the same accounting change, which may make it hard to savage the idea.

In forecasting future spending, CBO feels bound to project the cost of wars forward, even when they already show signs of winding down. Thus, in its March baseline, the CBO assumes $1.67 trillion in war funding through 2021; since the administration forecasts only $630 billion, budget writers can credit themselves with more than $1 trillion in added savings. … House Budget Committee Chairman Paul Ryan of Wisconsin counted the savings to show a larger deficit reduction than he otherwise could have. The whole scoring of the White House “grand bargain” also rested on large war savings.

The rest of the cuts would come from discretionary spending (maybe $1.2 trillion), non-healthcare mandatory spending ($300 billion), and interest savings. And maybe tack on some sort of new debt commission to help keep the credit raters at bay.

All and all, not a bad day’s work for a party that only controls one chamber of Congress and faced a White House that wanted a clean debt limit hike in April. (Though I would like a closer look at those discretionary cuts.)

After that, make the 2012 elections about the size and scope of government — and how to pay for it. Will it happen? Wouldn’t surprise me a bit. And, after all, markets won’t stay calm forever.

COMMENT

Democrats are the party of freeloaders. Freeloaders produce nothing much of value to society, while taking, taking, taking and demanding more. A society cannot long exist where 50% of citizens refuse to shoulder their own burden. Time to grow up, freeloading Dems. Time to put your money where your mouth is and accept responsibility for yourselves.

Republicans are seen as the party of business. Business produces jobs, taxes and economic vitality. Society cannot long exist without these. Time to stop seeing business as the enemy. Time to pull together and accept that those who take the biggest risks reap the biggest rewards. It’s only fair. If you have a problem with that, start a business.

So, everybody, quit your whining and accept your own complicity in our country’s current condition. Do as JFK exhorted in his inaugural address: “Ask not what your country can do for you. Ask what you can do for your country.”

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Obama vs. Boehner: Tax battle again plagues debt ceiling tax

Jul 23, 2011 01:08 UTC

First the basics from Reuters:

Here is what’s happening on Friday in negotiations to raise the U.S. government’s $14.3 trillion debt limit by Aug. 2 and avoid a credit default:

* U.S. House Speaker John Boehner walks away from talks with President Barack Obama on a deficit reduction deal that was to clear the way for an increase in the debt limit. Boehner says Obama wanted to raise taxes. Boehner says he will now begin talks with U.S. Senate leaders.

* Obama says it “hard to understand” why Boehner would walk away from what he called an “extraordinarily fair” deal. Obama says deal would have cut $1 trillion in discretionary spending and $650 billion from Medicare, Medicaid and other entitlements. Deal would have sought $1.2 trillion in revenues, which could have been achieved with raising income tax rates.

Roll Call is all over this, too. And here is the take of congressional GOP source to me:

We never had agreement on a revenue number. But the WH did demand more revenue post gang of 6 – a lot more revenue. Entitlements [changes included] Medicare raising age, significant savings, combining Medicare parts A and B, means testing. Also chain cpi on social security and additional savings. GOP proposed over 200 billion in medicaid savings, WH up to 120. But n agreement on$800 billion. But there would have been tax reform and 3 flat rates – broadened base, lower rates. WH wanted higher rates post gang.

Here is how I see it:  Boehner says they had an agreement on $800 billion in revenue, but then Obama asked for $400 billion post Gang of Six report. The “goal posts” were moved. That extra $400 billion would come from higher tax rates. That is an absolute, no-go, red-zone issue for Republicans. Where would the original $800 billion have come from? First, extra revenue from more economic growth generated by tax reform efficiencies. Second, and this is a pretty good guess based on what Boehner said, better tax enforcement. Here is Boehner describing where the money came from ” … and a tax system that was more efficient in collecting the taxes that were due the federal government>”

That is a classic item on the liberal agenda, and I can easily see Obama pushing it. Here is the Center for American Progress describing it:

An estimated $400 billion to 500 billion in taxes go uncollected every year in the United States because of tax evasion and noncompliance.  … This yawning “tax gap” increases the deficit and undermines the faith of honest taxpayers who don’t cut corners. Every additional $1 invested in tax enforcement and compliance can shrink the deficit by at least $3. President Barack Obama’s proposal to invest an additional $13 billion in IRS enforcement and compliance activities over the next decade will generate more than three times that amount in additional revenues—$42 billion, according to official estimates. The funding will allow the IRS to contact potentially noncompliant taxpayers that “it currently identifies but cannot contact given resource constraints” and strengthen pre-refund compliance checks, according to the Government Accountability Office. Better enforcement leads to greater compliance: After the IRS in recent years began targeting people using offshore bank accounts to evade taxes, about 19,000 taxpayers entered a voluntary compliance program and paid billions in back taxes and penalties.

My best guess is still $1.5 trillion in cuts  (no tax increases) plus a debt hike through 2012.

UPDATE: Here is bit more from another GOP aide:

Despite what WH briefers may be saying, any new revenue in the framework would NOT have been generated by letting the current tax rates expire. That is simply false. Under the framework discussed, a CEILING was agreed upon that could generate $800 billion in new revenue over ten years. This would be done through comprehensive tax reform that would clear out deductions, credits, and loopholes in the system – and spur economic growth. After the gang of six plan came out, the White House moved the goal posts and insisted on $400 billion more in higher taxes – a 50% increase in revenue – and wanted that to be the FLOOR instead of the ceiling. The President acknowledged this in his remarks tonight. “Letting tax cuts expire” was never part of the tax reform agreed to.

COMMENT

Did you know that right now, the IRS is in a comment period on a new regulation revision. (REV.Proc. 2000-43)
The IRS, bending to the administration wishes, wants
the IRS commissioner, and deputy commissioner to be
able to discuss details of individual cases with the
currently INDEPENDENT Office of Appeals
without the knowledge of the taxpayer (or his
representative). The basis of this sought after change
in the existing ex parte communication rule is
said to be only supervisory in nature. Bull.
A supervisor needs to talk an independent body behind
close doors…maybe even lean on them a little?

Well, I think so. Here is another great
example of the liberal socialistic/communistic-leaning
mentality currently in the WH that wishes to bend
and control tax cases so that due process isn’t
going to happen no matter what…only what is beneficial to the governing authority! If a tax case goes
before the Appeals….the person is guilty on arrival,
why bother?

In a democracy, independent MEANS independent!

We just saw the CFPB’s (Consumer Financial Protection
Bureau) birth this last week wishing to be the first
agency (in a democratic country!) that doesn’t need
to answer to Congress, and therefore the people.
The CFPB is the silencing of the American majority!

In this debt ceiling debate, there is more at play and it is Boehner’s wish to stop the trampling of the democratic process.

I’m from Wisconsin and in this state, we’ve witnessed
the democratic process going-to-the-dogs under the
stresses of union/minority fiscal and political power,
mainly the democratic party.
A republican governor stepped in and fought
like everything to get the movement turned back
to sane, equal, and forthright.
Yet, the Obama administration and Chicago-
style politics forced it’s way into our state struggle against (yes) communistic-like leanings.
Well, the tables are turned by law now. Democracy
is once again working properly, but the communistic-like
leanings are STILL in Wisconsin trying to recall
themselves back into power. And much, much
of that funding is being generated at the bidding
of Obama and gang.

In this current debate on Washington Hill,
Congress MUST show whose boss and that’s the whole of it. Boehner has to win here and stop the
momentum of this whole country turning eventually away from democracy.

Posted by limapie | Report as abusive

A brief chat with Rep. Jim Jordan

Jul 22, 2011 21:27 UTC

Any good wrestler will tell you that the key to success is knowing a limited number of moves very well — not trying to mastery every counter or attack in the book. Rep. Jim Jordan, chair of the conservative Republican Study Committee, was a champion college grappler who’s brought that focused approach to the House. I talked with him briefly this afternoon about some of the compromise deals floating around Capitol Hill. For instance, Nancy Pelosi said she’s open to this deal (via Talking Points Memo):

“We’re willing to bite the bullet and make serious cuts in discretionary spending,” Pelosi told a small group of reporters and bloggers. “That could go to a trillion dollars or more. And the interest saved on that can take us to like a trillion and a half dollars saved. .. We could go even further with non-health mandatories, could take us almost to two trillion. We could use the offshore — the Overseas Contingency [the wars in Iraq and Afghanistan] — could take us to two-and-a-half trillion dollars. Which is the dollar-for-dollar for the lifting the debt ceiling. I don’t think we have to have dollar-for-dollar, but for those who think they do, there’s a path to get there.”

Jordan said that sounds to him like more “gimmicks and games” and would be a poor substitute for the GOP’s Cut, Cap and Balance plan. And how about a temporary debt hike to buy time to work out some grand bargain? He was again quite clear: “No, no, no.” To him, these deals are business as usual to avoid fundamental reform. Forget them. Jordan’s focus is on CCB. “And the time is now.”

The beauty part of CCB is that it cuts spending right away, by $111 billion in 2012.  Any cuts beyond that are promises, he says, and promises from Congress are not like “promises from your wife or a trusted friend.” And while Jordan is in favor of tax reform — lower rates, fewer tax breaks — that should be done separately and not distract from the important business of cutting spending.

I also asked him about the possibility of a U.S. credit rating downgrade. He took it quite seriously but also made the point that if Washington doesn’t get its fiscal house in order, a downgrade is coming anyway — and probably a lot worse.

Debt ceiling update: What Wall Street thinks is happening

Jul 22, 2011 16:15 UTC

One reason financial markets have been relatively sanguine about the debt ceiling negotiations is that investors have been almost certain that something gets done by August 2. Here is what one bank lobbyist told me today:

1-1.5T in spending cuts and an equal 1-1.5T on debt ceiling lift (a short term reprieve) — with the next 120 days battling over the Grand spending/revenue Deal (that uses Bowles/Simpson – Gang of 6 as the starting point).

And this is what BankofAmericaMerrillLynch is saying:

We expect a deal to come in two stages: a smaller up-front deal of possibly $50-100bn per year in deficit reductions (relative to the President’s initial budget offered in February 2011) over the next decade, combined with a more comprehensive deal to be passed either at the end of the year or early next year. The comprehensive deal would include both tax and entitlement reform and cuts to discretionary spending. However, our concern is that policymakers struggle to come up with a credible longer-term plan before year-end, particularly since it is an election year. This would mean we could face the risk of another debt ceiling crisis and ultimately rating agency downgrades.

With this plan, we believe the debt ceiling will be raised before August 2nd, but probably by only $500bn to give Congress six months time to write and pass the new legislation. Any agreement to raise the debt ceiling by a much larger amount in the future would likely be conditioned upon passage of the more comprehensive legislation.

We expect the US credit rating to remain on negative outlook and for a downgrade to AA to occur only when the rating agencies believe there will be no serious follow through. This means a downgrade would not likely occur until after the six month period of negotiations which puts us in early next year. Following any federal downgrade, we would expect downgrades of insurance companies, government related enterprises and state governments that depend heavily on federal funding. S&P has taken a more aggressive stance then the others, and may downgrade to AA+ as early as August if there remain significant risks to implementing a $4 trillion longer term fiscal plan.

Also, my pal Phil Klein had this takeaway from his chat with House Speaker Boehner today:

I asked Boehner whether some sort of short-term agreement would be necessary given that they’re closing in on the Aug. 2 deadline, and even if a late deal were struck, it would have to be written, scored by the Congressional Budget Office, and passed by the House and Senate.

“It is not what the goal here is,” Boehner responded. “As I said, there are two challenges here that we have to overcome. We have to raise the debt ceiling, and we have to have a serious down payment on reducing our budget deficit and our debt.”

Saying it isn’t the goal is different than saying it isn’t going to happen. Some sort of short-term extension seems inevitable, if nothing else but to give them time to do all the procedural things if they’re close to a bigger deal. There’s nothing ideologically preventing either side from this, and as I’ve noted, both chambers have already voted for deficit spending through Sept. 30, so there’s an easy argument for extending it at leas through then.

Read more at the Washington Examiner.

 

COMMENT

The British minister was correct in stating that “right-wing nutters” in the House of Representatives are responsible for the position we find ourselves in as tea-party Republicans are trying to implement their far right-wing agenda by holding the American economy, and working American men and women, hostage with actions that could seriously damage the economy and the middle class and poor. To those of you who voted for these nuts, I hope you’re satisfied with what you got because the bottom line is the actions of these fools will hurt you too unless you happen to be part of the 2% that hold most of our country’s wealth. To the rest of you, I ask that you consider the proposition that there needs to be a redistribution of wealth in this country by making the wealthy pay their fair share of taxes. We cannot keep going the way we’re going or we’ll end up an extremely polarized country wherein 98% of the citizens live at a third-world level and 2% live a life of unimaginable luxury. This country will then become completely dysfunctional as we’re close to being right now, and there will be violence as the 98% take wealth from the rich whether they like it or not. Don’t think it can’t happen because it has happened many times throughout history. And, it will soon happen in this country, if Republicans continue their nonsense.

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Resisting the Gang of Six budget temptation

Jul 21, 2011 15:04 UTC

America needs to raise its debt ceiling,  cut spending and implement wide-ranging tax reform. The Gang of Six plan claims to do all those things as it reduces debt by close to $4 trillion over a decade. If I could summarize my opposition in one sentence, it would be this one from Rep. Paul Ryan: “The plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems.”

Not enough? Well, Keith Hennessey,  head of the National Economic Council under President George W. Bush, offers a detailed dismantling of the G6 proposal.

I strongly oppose the Gang of Six plan. I think it is absolutely terrible fiscal policy.

First I’ll flag a few things I like in the plan.

  • I support making a technical correction to CPI, even though it would result in higher revenues.
  • Repeal of the CLASS Act is great.
  • It’s good they included medical malpractice reform.

That’s it. Others right-of-center are salivating at the low marginal income tax rates described in the plan, both for individuals and corporations. I think those low rates never materialize, for both arithmetic and legislative reasons, and explain why below.

Read the whole thing but are some key points:

1. It provides no discretionary spending totals.

2. It cuts defense spending while hiding the ball on nondefense spending.

3. The promised deficit reduction is both overstated and less than is needed.

Their $3.7 trillion of claimed deficit reduction is bogus. It includes an unspecified amount of savings from a future legislative fast-track process that would require further Congressional and Presidential action if health spending growth exceeds a certain target.

The Gang’s plan also uses at least three different baselines in different parts of the document. Combine that with the absence of discretionary spending totals and I have no confidence in their $3.7 trillion deficit reduction number.

4. It is a huge net tax increase.

The Gang of Six plan would increase taxes by $2.3 trillion over the next 10 years relative to current policy. That’s roughly a 6.5 percent increase in total taxation. Put another way, the Gang of Six plan raises taxes $830 B more than would President Obama’s February budget. To those who like the promise of low statutory tax rates – the benefits of low marginal rates are far outweighed by the increase in average effective rates. This is a massive hidden tax increase.

5. It’s a far worse trade than Bowles-Simpson.

The fundamental trade of the Bowles-Simpson group was higher net taxation in exchange for (huge long-term spending reduction, especially in entitlements + fundamental structural entitlement reform + pro-growth tax reform).

The Gang of Six plan drops the first two elements of that trade, the huge long-term spending reductions and the structural entitlement reforms. It instead purports to offer pro-growth tax reform in exchange for much higher net tax levels. It offers trivial spending cuts, no flattening of long-term entitlement spending trends, and no structural reform to the Big 3 entitlements.

6. It trades a permanent tax increase for only a temporary respite on spending.

The plan proposes permanent increases in net taxation levels in exchange for a temporary slowdown in spending. The entitlement spending line would be shifted ever so slightly downward – there would be no long-term “flattening of the spending curve

The consequence of this would be kicking the can down the road. Deficits would be smaller for the next 5-10 years while the higher tax levels offset entitlement spending growth. But since the plan does nothing to flatten the curve of Social Security, Medicare, or Medicaid spending, 5-10 years from now we will be right back where we are now, but with higher levels of taxation. We will again face huge and growing future deficits, driven by unsustainable entitlement spending growth.

7. It’s an unfair deal on CPI.

8. It precludes structural reforms to Medicare and Medicaid.

The Plan says “while maintaining the basic structure of [Medicare and Medicaid].” That language precludes needed fundamental reforms to these programs, as contemplated in Bowles-Simpson, Rivlin-Ryan, or the House-passed budget resolution.

9. It does almost nothing to slow health spending growth, and even the $115 B of additional health savings are bracketed.

10. It leaves the core trillion dollar ObamaCare health entitlement in place.

11. It makes it harder to do Social Security reform, drops the specific Social Security reforms of Bowles-Simpson and increases Social Security spending.

12. It sets the wrong bar for Social Security reform and tilts reform toward tax increases.

13. It locks in the net tax increase, then hopes to deliver on the stated tax reform policies.

If you are tempted by the promised details of tax reform, remember that those details would be negotiated after the Senate had already committed to a $2.3 trillion tax increase.

Even if I could swallow a $2.3 trillion tax increase, which I can’t, I don’t trust the tax reform process enough to take that risk. The plan offers no procedural guarantees to prevent the tax policies described within it from being ignored by the Senate Finance Committee.

14. It undoes most of the benefits of last December’s tax policy battle.

15. It sets up a tradeoff between marginal income rate cuts and capital tax rates.

The tax reform described in the Gang’s plan is silent on capital taxation. Side conversations suggest the Gang agreed to but did not put on paper a 20% rate for capital gains and dividends. From a pro-growth perspective, lowering marginal income tax rates by raising capital taxation rates is a bad trade. And both the numbers and politics suggest that much of the higher revenues raised from “eliminating tax breaks” would come from higher tax rates on capital rather than scaling back even more popular tax preferences for homeownership, charity, and health insurance.

Lowering the corporate income tax rate is nice, but you get more growth bang for the buck by allowing immediate expensing of investment. If depreciation is treated as a tax expenditure and the lower corporate rates are paid for in part by lengthening depreciation schedules, that will slow growth, not accelerate it.

16. The rate cuts are overpromised because the Gang overestimated the revenue that would be raised from reducing tax expenditures.

I strongly support scaling back or even eliminating most if not all tax preferences. I’d go much further than I could ever get support for from elected Members of Congress. But I want to use the revenue raised from eliminating those tax expenditures to cut rates, not to make spending cuts smaller as the Gang’s plan does.

The Joint Tax Committee warns us that the revenue raised by eliminating a tax preference is less than the measured “tax expenditure,” and often far less, because of the incentive effects. It appears the Gang far overestimated the revenues that would be raised from eliminating tax preferences, and therefore are promising marginal rates they cannot deliver. Those who are attracted by the low promised rates for individual and corporate income should understand that if the revenue raised from eliminating other tax preferences is insufficient, the actual rates in reform will be higher. And that’s assuming you trust a Senate Democratic majority process to deliver the unenforceable tax policy promises described in the Gang’s plan.

Tax experts I trust tell me they can’t see how you could design a tax reform that hits the revenue targets promised (even with a +$2.3T revenue increase) and get statutory rates as low as promised. The revenue raised from “reforming” these preferences won’t be enough to lower rates that much, and repeal the AMT, and move to a territorial system, and reduce deficits.

17. The plan proposes a deficit trigger mechanism that might include automatic tax increases.

 

 

The impact of U.S. credit rating downgrade

Jul 20, 2011 17:22 UTC

It does not appear to be as frightening as I might have assumed. Here is a bit (via Business Insider) from a Goldman Sachs conference call this morning where the impact of a AAA downgrade is discussed

11:23 It has to do with the magnitude of the downgrade. If we went to AA, directionally it would be negative but it’s suprising the modest effect it could have on, IE:

– Money market mutual funds are front of mind when thinking about a downgrade. Reqired to hold 97% of their assets in AAA

In terms of the rating that matters – it’s the short-term rating, not the long-term rating. And the S&P has implied that it would only downgrade the long-term, so money market funds wouldn’t be affected. They hold between 300 and 350 billion in treasuries. Probably not as much of a risk

– Financial sector- banks — didn’t want to be too specific, but under Basel I there wouldn’t be any affect. under basel II, 0-risk to anything AA and above, so not really an issue

The complicated factor comes in with some of the larger firms, there could be a slight uptick in the calculated capital required to be set aside related to holdings. But a very minor change in capital requirements

– Insurers – obvious. those three bring the $ up to $1 trillion

– Pension funds – not much of an issue

11:28 Rest of the question becomes what the rest of the world would do, how much selling, but they might have more flexibility than holders in the U.S.

11:31: On august 3rd we have a social security checks due. On August 15, we have a coupon due. The treasury will have to decide what it will do to make those payments

Perhaps the bigger impact will be political if Obama or Republicans get the bulk of the blame for losing America’s gold-plated credit rating.

 

COMMENT

McBride, your credit works in a similar manner. When you have credit obligations and are paying them, your credit will strengthen. When you stop paying them your credit weakens. Whether you choose to borrow more or not does not impact your credit rating. However, your credit rating will determine how much you are able to borrow. Please make a better effort to understand the current political and economic climates.

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How would U.S. react to a debt crisis?

Jul 20, 2011 17:20 UTC

If the U.S. doesn’t get a handle on federal debt, there will be a financial and economic crisis. By 2035, debt as a share of GDP could be 250 percent, though a panic would surely happen long before that point was reached. But if a crisis came, how would Washington react? What drastic measures would be taken? I think there would be a huge push for a massive tax increase, probably via a value-added tax. Here is some of what the Comeback America Initiative sees happening:

Social Security

• The higher retirement eligibility ages for Social Security would be increased to 70 for normal retirement and 65 for early retirement, and fully implemented by 2030 and 2020, respectively.

Most of the proposed reforms under the Preemptive (Prudent) Framework would be retained with the following significant differences:

• Repeal the Affordable Care Act of 2010.

• Repeal the Medicare Modernization Act of 2003.

Defense:

Most of the illustrative reforms under the Preemptive (Prudent) Framework would be retained with the following significant differences:

• Accelerate the planned draw down of U.S. troops from Southwest Asia from the end of 2014 to the end of 2012.

• Accelerate the reduction of U.S. overseas military and civilian presence.

Taxes and Revenues:

• Impose temporary deficit reduction revenue increases in fiscal 2013-2014 to accelerate deficit reduction and debt/GDP stabilization efforts.

• Phase-in the special income and payroll tax exclusion on employer provided and paid health care by 2018.

• Take any other actions needed to comply with annual revenue targets.

And the result:

The result is a balancing of the total budget by 2015, and reduction of debt/GDP to about 51 percent of GDP in 2021 and declining rapidly, versus about 76 percent of GDP and increasing rapidly under CBO’s current law baseline, and to about 28 percent and declining in 2035 versus about 91 percent and rising under the baseline.  … Overall spending under the framework would be reduced to 20.1 percent of GDP in 2021, from 23.9 percent under the current law baseline, and to 21.8 percent of GDP and leveling in 2035 from 28.3 percent and rising under the baseline. Nominal public debt would be less in 2023 than 2015 and essentially stable.The Reactive (Crisis Management) Framework also involves having to impose a temporary deficit reduction revenue increases to accelerate deficit reduction and debt/GDP stabilization, while maintaining an overall cap on federal revenues at 21.5 percent of GDP

 

COMMENT

Re healthcare – As long as we’re in simplification mode, why not simply put the entire US population into a single risk pool? Then let insurance companies compete for customers and the providers to serve them. As it stands, each state sets its own regulations and the result is that insurers play the system by cherry picking markets, charging higher premiums in states where they can get away with it, and dictating how providers are compensated. Tear down the barriers and prices will fall.

The only thing certain about repealing Romneycare and not replacing it with another plan is that healthcare costs will soar off the charts and ever increasing numbers of people will be denied access.

Posted by Mint51HenryJ | Report as abusive

Americans still think raising debt ceiling a dodgy idea

Jul 20, 2011 14:34 UTC

These results from a survey by Northwestern’s Kellogg School of Management (via its Financial Trust Index site) are sure to get noticed in Washington:

Why the House GOP will deep six the Gang of Six

Jul 20, 2011 13:33 UTC

Will the House GOP play ball on the Gang of Six debt reduction plan? The Paul Ryan-led House Budget Committee is giving members all the ammo they need to take a pass (bold is mine):

Heavy Reliance on Revenues. The plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” It also claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. The CBO baseline assumes the expiration of tax relief, resulting in a $3.5 trillion revenue increase. As a result, the plan appears to include a $2 trillion revenue increase relative to a current policy baseline. If the $800 billion in tax increases from the new health care law are included, the plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems.

Elusive Spending Restraint. It is unclear how much the plan achieves in spending savings. Based on released documents, it appears to primarily rely on cuts in the defense budget through $886 billion in reductions from the President’s budget for “security programs.” In the security category the Gang of Six reduced the security category by $886 billion. Department of Defense (DOD) spending comprises approximately 85% of the security category. The Gang of Six also proposes a firewall that requires this $886 billion is cut from security spending.

Lack of Entitlement Reform. The plan does not address the $1.4 trillion in spending expansions in the new health care law. The health care law increases eligibility for the Medicaid program by one-third and creates a brand new health care entitlement. It does not appear to include reforms to the Medicare program. While it appears to pursue Social Security reform, it could end up creating barriers to enactment of these reforms.

I mean, the stunningly massive tax hike alone is a deal killer, I would think. Now there are some parts Team Ryan seems to like, and maybe they could get added to the McConnell-Reid plan, such as repealing the CLASS Act and various budget reforms. But more than that? I doubt it.

COMMENT

I concur Mr. Pethokoukis. If one considers the ordinary baseline is revenues of 18% of GDP, that would translate into about 2.7 trillion dollars. That is 27 trillion over 10 years. Increasing taxes by 2.8 trillion dollars means an increase of over 10% of all federal tax collections. That is an enormous tax increase in times of good economy and probably a disastrous increase in times of bad economic news. Gallup just came out yesterday with news unemployment in creased in the first half of July. If that persists it means unemployment in early August will increase. Another potential problem few people realize is that the extra 280 billion dollars will probably not come from the “rich”. Recall the expiration of the tax cuts is thought to bring only 70 billion dollars a year. Either we will soak them by increasing their rate not by 4.6% but rather 18.4% or there will be tax increases for all the 53% of people who indeed pay income taxes or a massive increase in corporate taxes.

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